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Geo Energy Resources Ltd (GERL SP): Navigating challenges with strategic investments

• BUY Entry – 0.27 Target– 0.29 Stop Loss – 0.26
• Geo Energy Resources Limited is an integrated coal mining specialist. The Company owns and operates coal mines, offers mine contracting services to third party mine owners, and sells coal to both coal traders and coal export companies.
• Dividend policy holds firm despite market challenges. Geo Energy reported a 14% YoY decline in net profit to US$24.2mn for 1H24, primarily due to a reduction in coal prices. Despite this, the company maintained its commitment to shareholders by declaring an interim dividend of S$0.002 per share, representing a payout ratio of 11.4%. Production volumes totaled 2.8 Mt, mainly from the SDJ and TBR mines, while the TRA mine contributed 0.3 Mt. Stable coal sales of 3.2 Mt and a resilient cost model supported a healthy cash profit margin of 23%.
• Accelerated growth through infrastructure investment and diversification. Geo Energy recently signed a US$150mn EPC contract with CCCC First Harbor Consultants and Norinco International Cooperation to develop a 92 km hauling road and jetty in South Sumatera and Jambi Province, Indonesia. This infrastructure will boost PT Triaryani (TRA) mine’s transport capacity to 40-50 Mt per year, with 25 Mt allocated for TRA. The project’s deferred payment mechanism minimizes upfront cash outlay, allowing the infrastructure to generate revenue before payments begin. Upon completion in early 2026, not only will this development scale up production to 25 Mt annually but also it results in significant logistical cost savings, potentially generating US$400-500 mn in annual EBITDA. The project also diversifies Geo Energy’s revenue stream as an infrastructure provider.
• Coal prices to normalise. With demand and supply currently in balance, coal prices are expected to remain relatively steady for FY24. As a result, Geo Energy’s potential to boost its topline will rely more on increasing production volumes rather than benefiting from price fluctuations. The company has revised its full-year production forecast from the initial 10-11 Mt down to 8-9 Mt, having produced 2.8 Mt in 1H24. July’s production levels indicate that the company is on track to meet this new target.
• 1H24 results review. Revenue for 1H24 declined by 29% YoY to US$169.4mn, primarily due to lower ICI4 coal prices, averaging US$56.13 per tonne compared to US$70.46 in 1H23. Production was adversely affected by unfavorable weather conditions in the first half of the year. However, cash profit per tonne remained robust at US$11.94, reflecting its cost-efficient model where cash costs decrease in line with lower ICI4 prices. Geo Energy declared a second interim dividend of S$0.002 per share.
• We have fundamental coverage with a BUY recommendation and a TP of S$0.68. Please read the full report here.
• Market Consensus.

(Source: Bloomberg)

CapitaLand Investment Ltd (CLI SP): Benefiting from China’s economic stimulus

• RE-ITERATE BUY Entry – 3.05 Target– 3.35 Stop Loss – 2.90
• CapitaLand Investment Limited (CLI) is a global real estate investment manager with the aim to scale its FUM and fee-related earnings through its full stack of investment management and operating capabilities. The Company’s portfolio of integrated developments, retail, office, lodging and new economy assets are either owned/managed directly or through its fund management platform.
• China’s stimulus package improving investor confidence. China recently unveiled its largest package to date to support its struggling property market, reducing borrowing costs on up to US$5.3tn in mortgages and lowering the down-payment requirement for second homes to 15% from 25%. The People’s Bank of China (PBOC) will cut mortgage rates for existing loans by an average of 0.5 percentage points, aiming to alleviate a housing-led slowdown in the economy. These measures are expected to ease the mortgage burden for an estimated 150mn people, reducing annual interest expenses by about 150bn yuan. Additionally, the PBOC also introduced 800bn yuan (US$114bn) worth of new funding tools for buying stocks and pledged more monetary easing. These measures have resulted in the strengthening of the yuan and has increased investor interest and positive sentiment over China’s economy. This imrpovemenr in economic sentiment would prove beneficial for CapitaLand Investment as it has invested in properties in China and could potentially lead to higher property values and rental demand, boosting the company’s returns. With China’s renewed focus on stimulating its property market and economy, CapitaLand Investment stands to benefit from the increased liquidity and consumer spending, enhancing its portfolio performance in the region. These policy changes may also attract more foreign investments, further stabilizing the market and providing long-term growth opportunities for real estate investors like CapitaLand.
• Potential acquisition. CapitaLand Investment is in advanced discussions to acquire a 20% to 30% minority stake in French luxury resort chain Club Med SAS from its Chinese owner, Fosun International, for several hundred million euros. CapitaLand has emerged as the likeliest buyer after outbidding other rivals, including private equity firms, though final decisions have yet to be made. Fosun International, which owns Club Med through Fosun Tourism Group, has been actively reducing its debt through asset disposals and reduced borrowing. Club Med operates over 60 all-inclusive resorts worldwide.
• 1H24 results review. Revenue for 1H24 increased by 1% YoY to S$1,365mn, compared to S$1,345mn in 1H23. PATMI declined by 6% YoY from S$351mn to S$331mn, due to weaker real estate investment business, which was impacted by higher interest expenses and unfavourable foreign exchange rates.
• Market Consensus.

(Source: Bloomberg)

Hong Kong Exchanges and Clearing Ltd (388 HK): Fast and furious bull run

• BUY Entry – 322 Target 362 Stop Loss – 302
• Hong Kong Exchanges and Clearing Limited (HKEX) is principally engaged in the operation of stock exchanges. The Company operates through five business segments. The Cash segment includes various equity products traded on the Cash Market platforms, the Shanghai Stock Exchange and the Shenzhen Stock Exchange. The Equity and Financial Derivatives segment includes derivatives products traded on Hong Kong Futures Exchange Limited (HKFE) and the Stock Exchange of Hong Kong Limited (SEHK) and other related activities. The Commodities segment includes the operations of the London Metal Exchange (LME). The Clearing segment includes the operations of various clearing houses, such as Hong Kong Securities Clearing Company Limited, the SEHK Options Clearing House Limited, HKFE Clearing Corporation Limited, over the counter (OTC) Clearing Hong Kong Limited and LME Clear Limited. The Platform and Infrastructure segment provides users with access to the platform and infrastructure of the Company.
• Booster jabs for China’s economy and equity market. Before Golden Week (China’s national holiday), the central government announced a series of monetary and fiscal stimulus which exceeded market expectations. Lowering key rates and RRR, easing property purchase restrictions, and initiating equities pledges for government bonds were several main positive measures. Meanwhile, the authority also hinted more upcoming stimulus. China and Hong Kong equity markets reacted positively and swiftly. Hong Kong Stock Exchange recorded a new high of daily turnover on 27^th Sep, amounting to more than HK$400bn. Fear of missing out is happening in both markets.
• Breakout of a key psychological level. The recent recovery of the Hang Seng Index, which is now trading at a 52-week high, above the 20,000 level is bound to improve investor sentiments, further driving fund flows in the Hong Kong stock market. HKEX is well-positioned to benefit from the increased liquidity and volume of the stock market.

HKEX Stock Price and HSI Correlation

(Source: Bloomberg)

• To benefit from increasing IPO activities. Hong Kong’s IPO market is poised for growth, with positive signals suggesting more mega deals on the horizon. According to Chan, CEO of HKEX, the market expects increased IPO activity and sustained momentum. Medea’s recent IPO on the HKEX raised HK$31.01 billion, marking the city’s largest listing in over three years. So far this year, Hong Kong has raised approximately HK$51 billion through 45 IPOs and is expected to see continued robust activity through year-end. Alongside IPOs, the city’s secondary fundraising market is also gaining traction, with over US$20 billion raised through follow-on offerings to date. This surge in IPO and fundraising activity is set to significantly benefit HKEX.
• 1H24 earnings. Revenue rose marginally by 0.4% YoY to HK$10.6bn in 1H24, compared to HK$10.8bn in 1H23. Net profit fell by 3.0% YoY to HK$6.12bn in 1H24, from HK6.31bn in 1H23. Basic and diluted earnings per share was HK$4.84 in 1H24, compared to HK$4.99 in 1H23.
• Market consensus.

(Source: Bloomberg)

CSC Financial Co Ltd (6066 HK): Resuscitating the economy

• Entry – 8.30 Target 9.70 Stop Loss – 7.50
• China Securities Co., Ltd. is mainly engaged in securities brokerage, securities investment consulting, financial advisers related to securities trading and securities investment activities, securities underwriting and sponsor, securities self-management, securities asset management, securities investment fund agent distribution, providing futures companies with medium introduction services, margin financing, financial products agent distribution, insurances facultative agent, stock options market making, securities investment fund trusteeship and precious metal products sales businesses.
• Unveiling stimulus to boost economy. China has announced a series of rate cuts aimed at stimulating economic growth, with a commitment to enhancing both consumption and investment. As part of these efforts, the People’s Bank of China reduced interest rates on existing mortgages by 0.5 percentage points and lowered the reserve requirements for banks, enabling increased lending. The stimulus package also includes relaxed restrictions on borrowing for stock market investments and a reduction in the minimum down payment for second homes from 25% to 15%. These actions represent some of the most significant economic measures China has introduced in recent years to revive its sluggish economy.
• More liquidity injected into the stock market. China has also announced a reduction in the reserve requirement ratio (RRR), which determines the amount of cash banks must hold in reserve. This move is expected to inject approximately one trillion yuan of “long-term liquidity” into the financial market. Additionally, the government will introduce a “swap program,” allowing companies to obtain liquidity directly from the central bank. This initiative, with an initial scale of 500 billion yuan and potential future expansions, is expected to significantly improve firms’ access to capital for stock purchases. The anticipated increase in market liquidity is likely to boost investor sentiment, benefiting firms like CSC Financials.
• Benefitting from a lower interest rates. The lowering of Hong Kong’s interest rate by 50 basis points to 5.25% recently, mirroring the U.S. Federal Reserve’s move. This rate cut is expected to boost business confidence and stimulate consumer spending in Hong Kong. Lower rates are also likely to encourage a shift of funds from safe assets into the stock market, enhancing market liquidity and trading volumes. The recent recovery of the Hang Seng Index, which is now trading at a 52-week high, above the 20,000 level is bound to improve investor sentiments, further driving fund flows in the Hong Kong stock market. CSC Financial is well-positioned to benefit from the increased liquidity and volume of the stock market.
• 1H24 earnings. Total revenue fell by 20.5% YoY to RMB14.8bn in 1H24, compared to RMB18.7bn in 1H23. Net profit fell by 33.6% YoY to RMB2.86bn in 1H24, compared to RMB4.32bn in 1H23. Basic earnings per share was RMB0.30 in 1H24, compared to RMB0.49 in 1H23.
• Market consensus.

(Source: Bloomberg)

Uber Technologies Inc (UBER US): Rolling out Robotaxi

• RE-ITERATE BUY Entry – 75 Target – 83 Stop Loss – 71
• Uber Technologies Inc provides ride hailing services. The Company develops applications for road transportation, navigation, ride sharing, and payment processing solutions. Uber Technologies serves customers worldwide.
• Actively promote the robot taxi business. Uber Technologies, which has been making a lot of moves in the self-driving and robo-taxi space recently, recently announced a partnership with WeRide to bring the Chinese self-driving technology company’s vehicles to the sharing platform, starting with the United Arab Emirates. In addition, the company expanded its cooperation with Waymo to introduce robot taxis to Austin and Atlanta in the United States. The company is also working with Cruise, GM’s robo-taxi unit, which will offer self-driving cars on the platform starting next year.
• Funds are rotated into cyclical and growth sectors. Entering the fourth quarter, institutions’ asset portfolios will be adjusted. The market still maintains expectations that the Federal Reserve will cut interest rates by 200 basis points in the next year. Loose monetary policies will continue to benefit platform stocks in obtaining capital inflows.
• 2Q24 earnings review. Revenue increased by 15.9% YoY to US$10.7bn, exceeding expectations by US$120mn. GAAP earnings per share were US$0.47, beating expectations by US$0.16. The company’s third-quarter gross bookings guidance is US$40.25bn to US$41.75bnn (an annual increase of 18% to 23% at constant exchange rates).
• Market consensus.

(Source: Bloomberg)

Tesla Inc (TSLA US): Robocars unite

• RE-ITERATE BUY Entry – 255 Target – 280 Stop Loss – 242
• Tesla Inc. operates as a multinational automotive and clean energy company. The Company designs and manufactures electric vehicles, battery energy storage from home to grid-scale, solar panels and solar roof tiles, and related products and services. Tesla owns its sales and service network and sells electric power train components to other automobile manufacturers.
• High expectations for Q3 deliveries. On 2 October, Tesla is expected to announce its third-quarter delivery numbers. The company is expected to have a strong third quarter in China, potentially marking its best quarter ever there, prompting analysts to raise their delivery forecasts for the electric vehicle maker. Wall Street now anticipates Tesla delivering around 462,000 to 480,000 vehicles in Q3, with the average estimate at 462,000. This surge in China sales comes at a critical time, helping to offset weaker demand in the US and Europe. While Tesla’s core business is facing competitive pressures and high borrowing costs, the recent cut in interest rate and stimulus support from governments would help strengthen the demand for big-ticket purchases like cars, which would further improve sales. Furthermore, the upcoming “Robotaxi Day” event, where Tesla will unveil its self-driving technology, could further boost investor confidence.
• “We, Robot”, robotaxi event. Invitations for the Tesla Robotaxi reveal event have been sent out and is set to happen on 10 October this year. Anticipation has risen due to speculation that the Robotaxi will have reached full autonomy alongside the rollout of full self-driving (FSD) 13, which is an improved version of its current supervised automated driving suite. The FSD 13 release is expected to introduce automated reverse parking and reduce the number of interventions per mile driven on FSD. Furthermore, the CEO of Tesla, Elon Musk, had announced on social media that once its unsupervised full-self-driving robotaxi service begins operations, busses would no longer be needed, and it would be similarly priced to a bus ticket. Additionally, he also mentioned that the robotaxis would function like a combination of Airbnb and Uber, with a certain portion of the fleet being owned by Tesla alongside individual Tesla customers for additional income, and the rides can be called via the mobile app. This initiative to develop fully autonomous vehicles using FSD technology will give it an edge over its EV competitors while positing it in the AI race.
• 2Q24 earnings review. Revenue increased by 2.3% YoY to US$25.5bn, exceeding expectations by US$760mn. Non-GAAP earnings per share were US$0.52, missing expectations by US$0.10.
• Market consensus.

(Source: Bloomberg)

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Trading Dashboard Update: Take profit on Sasseur REIT (SASSR SP) at S$0.725. Add Uber Technologies Inc (UBER US) at US$75.